Yahoo Finance Hopeful sign cost-of-living crisis may soon come to an end
Inflation in the US has dropped below 3 per cent, and many Aussies will be hoping ours follows suit.
The terror of inflation that has been menacing our nation, might be defeatable.
It has sent us backwards at a rapid pace, making us poorer than before. It has proved a tough enemy, laughing in the face of our efforts to defeat it. But now there are signs inflation could be on its last legs. Maybe there is hope. Maybe its reign of terror won’t last forever after all.
The hope comes from the US, where inflation has fallen to just 3 per cent. In fact, it is under 3 per cent - 2.97 per cent to be exact. While our official inflation is still hovering up around 7 per cent, the Americans have managed to kick inflation’s legs out from under it and wrestle it onto the mat.
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America looks to have beaten inflation without a recession. That’s a triumph. Australia usually follows America in just about everything.
As the next chart shows, our inflation rose a few months after theirs. Our inflation peaked a few months after theirs. Could it be that we will also defeat inflation just a few months after them?
An end to inflation could mean visiting the supermarket won’t be quite so terrifying (My favourite yoghurt went up by another 50 cents the other day – it keeps happening and, every time, it feels like a personal attack!)
What’s more, it will mean the Reserve Bank (RBA) won’t need to put so much pain on mortgage holders - if inflation eases, rate rises can stop. That will be an enormous source of relief for Aussies who are already paying the bank $1,000 a month more than they were last year.
Two inflation measures
Australia’s next official inflation data will come out on July 26. It’s important to pay attention here, because we have two inflation measures.
There’s the “official” quarterly inflation data, which last came out nearly three months ago, and was 7.0 per cent. The official number can be way out of date. The Australian Bureau of Statistics (ABS) collects data over a three-month period, then waits a month, then reports it. So, even on the day the data comes out, it could be as much as four months old. Then we wait three months for the next release. At which point, “the latest inflation data” could be as much as seven months old.
This is why we have the monthly inflation indicator. It is a new series that still comes from the official ABS, but isn’t the official series. It is just an “indicator” of where the official series might go next. It doesn’t include everything the official numbers include – but it comes out three times more often. The monthly indicator can capture real-world moves before the official number. The monthly indicator is already falling - it fell to just 5.6 per cent in the most recent data, covering up to May.
When Australia’s inflation data comes out next Thursday, we will get both the official quarterly data and the monthly June data on the same day. With a bit of luck, they will show that the worst is behind us, and we are following the US down. A trajectory depicted by the red arrow in the chart above.
But, of course, the devil could be in the details. America’s inflation is a bit different to ours. For example, we don’t have any second-hand goods in our inflation series. In America, second-hand cars are a big part of the inflation measure. They drove it up when second-hand car prices were soaring back in 2021-22, and dragged inflation down again when prices began to slip in 2022-23.
And, in America, rents are falling, whereas here, they are still rising strongly – thanks in large part to strong catch-up migration. That will keep upward pressure on Australian inflation for a while.
Americans are already experiencing relief in the supermarket aisle and they can justifiably hope their mortgages won’t keep rising. Australia’s dreams of the same looks more realistic than ever. But still, our outcomes are uncertain.
Much will depend on what matters more: Is inflation a big, global phenomenon where we can expect to follow America? Or was that just the case on the way up? Could the way down be driven by local factors? Let’s hope the RBA doesn’t have to tip our economy into recession.
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